Polaris Should Focus On Consolidation More Than Growth

Updated on November 7, 2012

Arun Jain Was ‘Punished’ By SEBI

Arun Jain Was ‘Punished’ By SEBI | Source

Citigroup Helped Polaris

Good Q2 Results

Polaris has reported an increase of 42% in its operating profit for the second quarter ended 30.09.12 compared to the corresponding period of the previous year. During the quarter the operating profit was at Rs.128 crore. Revenue increased by 18% to Rs.599 crore. If we compare the results with the first quarter, then operating profit increased by 15% and revenue was up by 3%. Revenue was reported at $113 million at constant currency basis. It was a 3% increase compared to the first quarter.

FT Sourcing Contributes Bread And Butter of the Company’s Business

Three fourths of the company’s business comes from FT sourcing. It increased by 21% over the corresponding period of the previous year to Rs.448 crore. During the quarter the company clinched three major outsourcing deals – the first with a major client from USA and two others from major European banks. The intellect business increased by 13% over the first quarter to Rs.150 crore. Compared to the corresponding period of the previous year, the growth was 8%, contributing one fourth of the overall business of the company. The company won 9 new intellect clients during the second quarter.

Deal With Pyxis

Polaris Financial Technology has signed a deal with Pyxis. This will strengthen its consulting capabilities. Pyxis is a specialised company in technology for international markets. Pyxis will chip in with its market solutions to assist Polaris. The domain specialists from Pyxis will join Polaris for help. Contract details have not been disclosed by the company yet. 40 members of the consulting team from Pyxis will join Polaris. The clients of the company are mainly banks with contracts connected with derivatives and corporate banking. Polaris will get deals below $10 million. Pyxis’ Nandlal Bhatkar will head the consulting team. Kedarnath Udiyavar will head overall consulting practice.

Rs.5 per Share Dividend

Pyxis was formed in 2005. It specialises in technologies for international markets from market and office risk related to derivatives and cash instruments. If also offers services related to interest rate, foreign exchange, equity and credit asset classes to its international financial clients. Polaris paid Rs.3 per share as the final dividend for the year ended 31.03.12. Interim dividend was Rs.2 per share. Total dividend works out to Rs.5 per share.

Arun Jain Was ‘Punished’ By SEBI

Polaris’ Chief Arun Jain was caught in an insider trading scandal and was barred by SEBI from securities market for two years. Arun Jain will be laughing at SEBI’s announcement because it is no punishment at all. If the leader of a big company is caught in insider scandal, he should be dismissed from his post and imprisoned. See what has happened to Rajat Gupta. Inspite of his reputation and inspite of Bill Gates’ recommendation, he was sentenced to two years in jail. He was forced to resign from all the posts he was serving. That is America. Here the toothless SEBI has handed over a sentence which it calls punishment. Next time Arun Jain is caught (of course he will do it more cunningly without getting caught), one can expect SEBI levy a fine of twenty five rupees on Arun Jain. Third time, the penalty amount may be increased to thirty five rupees. Arun Jain should congratulate himself for not being born in America.

Polaris Doubles Its Revenue in the Last Four Years

Even this minor punishment of SEBI may not be enforced because Arun Jain has appealed to SAT (Securities Appellate Tribunal). Suresh Kalmadi has a good influence with SAT and if Arun Jain greases Kalmadi’s palms, he can wriggle out of this minor trouble. What are the achievements of Arun Jain by the way? He has done something really good for the company. In 2002, he acquired from Citigroup OrbiTech but it proved to be a failure. Nevertheless Polaris doubled its revenue to Rs.2000 crore in the last 4 years. In 2009, it acquired Laser Soft to foray into Indian market. It bagged prestigious clients like RBI and NABARD. Arun Jain has been functioning in Polaris for the last fifteen years.

Citigroup Helped Polaris

There are only five product firms in the international level that have doubled their revenue in the last four years. It was Citibank that helped Arun Jain to acquire knowledge about global markets and operations. Even today Citigroup holds nearly 20% stake in Polaris and gives business amounting to 40% of Polaris’ total revenue. One reason why the acquisition of OrbiTech in 2002 did not yield the desired result was OrbiTech was larger than Polaris. You can’t chew more than you can bite, can you? KPO/BPO arm of Optimus also failed. Polaris invested Rs.40 crore in Optimus and already wrote off that amount.

Again Planning To Double Its Revenue

Polaris also faced litigation in USA when Data Inc sued it for violating written contract. Arun Jain was imprisoned in Indonesia for violation of a contract. But Laser Soft proved to be beneficial. Earlier Polaris was not able to bag PSU orders. But through Laser Soft, it bagged contracts from clients like RBI. Polaris has invested Rs.100 crore annually for the last 7 years on research. Polaris has increased its marketing expenses from $35 million two years back to $55 million now. Polaris is planning to double its total revenues by 2015. That will be a fantastic achievement and a feather in Arun Jain’s cap. Now you understand why the company is persisting with him inspite of so many adverse strictures against him?

Takeover Rumours

Arun Jain is contemplating to acquire two companies every year in the range of $20-30 million. He is lucky that Narayana Murthy is not present in Polaris. Narayana Murthy is totally against acquisitions and wanted Infosys to grow on its legs. Poor Kamath, the acquisition specialist of ICICI fame, he has to live under the shadow of Narayana Murthy. But Arun Jain is a free man and is not tied with any chains. But business from very large clients is growing at a snail’s pace at Polaris. Arun Jain needs to address to consolidation before he thinks of growth. Will Polaris be taken over by somebody? There are possibilities. Already Capgemini and IBM tried to acquire the company.

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